Even as large public sector banks grapple with asset quality woes, Union Bank of India stayed an outlier in the second quarter of the financial year. It recorded a sequential dip its non-performing asset (NPA) numbers, both in absolute and percentage terms.

While one quarter is too short a time span to judge whether or not this a one-off event, the bank's management feels that NPA levels are headed downwards. Union Bank's gross NPA levels fell 10 basis points to 3.66% in the July-September quarter. Also, the addition to its restructured book of R839 crore was the lowest in four quarters.

An HSBC note cautions that despite asset quality for Union Bank stabilising in 2Q, given the continuing tough macro environment, asset quality will continue to witness stress in coming quarters. These worries are reflected in the results of larger public sector banks. For instance SBIs gross NPA levels rose 18 bps to 5.15%, and PNB;s rose 137 bps to 4.7%.

Union Bank executive director S S Mundra, nevertheless believes that the fall in NPA levels is not a one-off and is a result of what the bank has been doing over the last 3-4 quarters. We expect to bring down our gross NPA levels to 3% at the end of the financial year from the current 3.66%, said Mundra.

Some of the recent changes the bank has implemented include working with two general managers focused on troubled assets. Also, the bank has created separate strategies for dealing with smaller accounts and large accounts. For the above R1 lakh accounts, we rely more on one-on-one engagements, he said.

Apart from setting up more credit camps for enhancing recoveries, the bank has, for the first time, set up call centres across the country for tracking troubled accounts. This enables the bank to keep tabs on accounts right from when there are early indications of trouble. Mundra said that the bank is on a mission to improve recoveries.

It has not been a time for aggressive loan growth. Therefore we focused our energies on improving asset quality, he said.

Mundra said that the bank has also taken a conservative view in recognising NPAs, rather then window dressing them as restructured assets. It is possible that Union Bank's NPA levels have peaked as they recognise stressed assets upfront, an analyst from a leading brokerage house said.